Markets are optimistic, consumers less so
Weekly Bond Commentary
Amid concerns about the emergence of new variants of Covid-19, financial markets remained focused on the future.
Last week, the yield on the 10-year U.S.. Treasury note hit its highest level since last March, as the steady march of vaccinations continues. Certainly, there have been hiccups in the rollout, but the direction seems clear that recovery is ahead, with normalcy close behind. The stock market also hit all-time highs despite the negative news.
Economic data was relatively light last week. Consumer price inflation was unchanged in January, excluding the volatile food and energy segments, and actually trended a bit lower over the last year. The Federal Reserve would like to see inflation at least at 2% before it begins to think about raising its federal funds rate, so it is on the sidelines for now.
Consumer confidence slipped a bit in early February, according to the University of Michigan sentiment survey. Consumers seem to be sensing a pickup in inflation, but at the same time, their financial picture softened despite the stimulus passed in December. Households in the bottom third reported the largest setbacks, which could be addressed by the new round of stimulus being debated in Washington.